Monday, June 25, 2012

Why many of Africa’s budding businessfolk are jacks-of-all-trades

African entrepreneurs

Parallel players

Jun 23rd 2012 | ACCRA AND MONROVIA | from the print edition

ONE of the many terms Silicon Valley has bequeathed to the business world is “serial entrepreneur”, a label for those restless souls who start one business after another. Perhaps Africa can now contribute another expression: the “parallel entrepreneur”. More than in any other part of the developing world, the continent’s budding business folk create networks of several firms across a number of different sectors of the economy, according to research by IMANI, a think-tank based in Ghana. The 189 successful entrepreneurs it surveyed in Ghana, Nigeria and Kenya own, on average, six businesses each. One boasted more than 60. What explains this entrepreneurial hyperactivity?
One reason for it is simply the wealth of opportunity, says Cyril Allen II, a well-connected businessman in Liberia’s capital, Monrovia. He and his family farm cocoa and coffee, run a cleaning business, lease out property and manage logistics for international companies. “The civil war here ended less than a decade ago.”
Once a firm has established a degree of trust among its customers, that can in turn spawn new businesses, particularly when many other firms are unreliable. “We work based on relationships, so if I have a good relationship with a client, they might ask for another service,” explains Njeri Rionge, an entrepreneur in Kenya whose interests extend from an internet provider to a management consultancy.
Necessity can also give rise to the creation of more than one company. UT Holdings, in Ghana, started out in 1997 granting loans. But Prince Kofi Amoabeng, its founder, soon discovered that he needed to provide additional services to make the loans business work. He first added a debt-collection company, then security firms. “We found existing companies wanting,” says Mr Amoabeng. He keeps expanding his business portfolio, which now includes a life-insurance firm.
Certain characteristics of African economies also make it more profitable to keep starting new firms rather than build a single big one. Key resources are scarce. Mid-level managers are in sufficient supply, but few are capable of running large businesses, which is why they often apply their talents in several firms simultaneously. Financing is hard to come by (in many countries loans are granted for as little as 20 months); entrepreneurs find it easier to get several small loans for each business rather than a large chunk of money.
But the most crucial factor may be bureaucracy. Its unpredictability deters businessmen from putting all their resources into one basket—out of fear that the market could be the target of onerous regulation. Separate companies are often used to lower tax payments, says Bright Simons, an entrepreneur in Accra, Ghana’s capital, who also works as a business analyst. A second firm might be formed to supply materials to the first, he explains, allowing the owner to adjust the prices and profits. And once an entrepreneur has learned how to navigate the red tape, why not apply this valuable skill to other undertakings?
Critics of Africa’s parallel entrepreneurs worry that jacks-of-all-trades cannot become masters of any. And some investors are wary of putting money into African firms because of their often labyrinthine ownership structures. But multitasking has its good sides, argues Ms Rionge, who in one of her parallel activities mentors young entrepreneurs. “It makes African business leaders agile and adaptable—both good skills that are absent in many developed economies.”